Software developers love to challenge themselves with things that make them feel good and the trickier the problem, the merrier it is to find the solution. In some cases, this could obviously be the killer innovation that nobody else has ever done, but if it is something that already exists and can be purchased from a third-party organization, it is waste of time and money to rebuild something that is already available. Do you remember the saying “ it can’t be good as it was not invented by us?”. I do remember vividly and have been the witness multiple time during my career.

Ten years ago software developers had to work on basic infrastructure before getting the solution built, but today, the focus should be mostly on innovating and assembling solutions that bring something new to the marketplace. I still see SaaS ISVs to claim that they need to build a billing solution as part of the solution, but there is plenty of other solutions already on the marketplace that do that well an can be integrated to the overall solution scenario.

I happened to view Microsoft Windows Azure homepage today to see if there was something new and was very happy to see the homepage to include the same statement that I am bringing here: “Focus on your application. Not the infrastructure”. A good place to start looking at other SaaS components/solutions is to visit Windows Azure marketplace that includes listings of different solutions that the ISV can use as part of their solution delivery. If you are a system integrator, you should also spend time understanding what the software ecosystem has to offer so you can become a trusted advisor to your clients.

I do recognize that in some cases there is a need to build “glue” components that can be regarded as infrastructure components, but at the same time, the ISV needs to realize that those components will be replaced by commodity software whereby the original solution needs to be reengineered in some way or the other. In the past, as a leader of a software development team, we had to spend lots of time creating infrastructure for our solution to even work. I used to be the lead for several business intelligence solutions and at that time, there just weren’t enough components or infrastructure that would take care of the basic functionality. I still remember vividly our fight in going from 16-bit Windows to 32-bit technology and we had to support APPC communication between the mini computer and the Windows desktops. The bad news was that IBM decided to redo most of the router software with a pace that we as an ISV had really hard time to follow and we run into pressure from our clients to upgrade our 16-bit technology. You typically do not want to be the first one on the planet to test new technology, but in this case we did not have a choice. We spent multiple months “running against the time” when trying to get our solution to work with the latest Windows router technology and it was not fun and it was very expensive.

I mentioned that SaaS ISVs should look at other SaaS solution to bring functionality as billing and organizations such as Zuora, Inc is an example of an organization that brings subscription billing and commerce platform that can be used by other SaaS vendors.

My message to cloud ISVs is simple: learn your cloud ecosystem, learn what there is that you can consume as part of your solution and focus on innovation on the solution and not on the infrastructure.

How do you make sure that your SaaS application is relevant and the end users are happy with the solution? In the past, you were able to charge for the solution in one big payment, but with the new subscription-based licensing model, you will have to retain the customer happy throughout the contract period and if the person is not happy, they will not continue using the software.

I have stated before in my blog posts that a net new client and the associated Customer Acquisition Costs (CAC) will have to be absorbed in a year or less, but the reality is something else. Therefore, if the customer quits using the solution after the first contract term (typically one year), the ISV will not even recoup the costs that were accumulated to get it in the first place. If you look at the included picture from Joel York (2010), you will see that the ISV will cover the overall customer acquisition costs by signing up new customer and eventually the ISV will make a profit as it will cover the CAC costs when the Churn is also considered. I explained this in more detail in my blog entry “ISV transitioning to the Cloud, Cloud Financials and Operational Metrics”

As developers and engineers, we typically fall in love with what we do and we expect the end users to do the same thing. Wrong. Won’t happen and have been there, done that. What we need to be doing is to building employee software as the Bessemer Top 10 Cloud Computing Law states (#Law5) and I described this in my previous blog entries. If we do not use the software ourselves within the company and act as real customers, why would we expect customers be the ones where we test the usability. You would be surprised how many times we have seen solutions entering the market without any testing. The question now becomes how the solution can be tested prior of delivery and also in scenarios where the SaaS ISV enables a trial version of the software. How can the ISV make sure that most of these trials are converted to real customers? How can we monitor the application usage and also identify possible use cases that lead to an unsatisfied customer/user?

Luckily, there are some innovative companies thinking about this and one of these is Totango that has recently announced a beta version of a solution that helps SaaS vendors to be more effective in retaining customers and also converting trials and freemium licenses to fully paid clients. According to CIO.com article, many SaaS vendors have adopted a freemium pricing model, which is an evolution of the traditional 30/day free trial model according to CIO.com. The freemium model enables users to use the software in perpetuity, but the freemium model is usually missing some key components/elements that the user organization needs and will there want to upgrade to.

Totango provides an “instrumentation layer” that tracks relevant business events that enables the ISV to really understand the application usage. The funny thing is that I used to build this kind of functionality into business intelligence solutions, specifically executive briefing books so we could evaluate if a report/graph was necessary and what had to go away. Back then, we wanted to make sure that the decision support group did not build charts/reports that were useless as this would be waste of time and money. Today a SaaS application that does not appeal a user will lead to churn and churn and low growth means slow death to the SaaS ISV. It is as simple as that.